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A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected
A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.39 million per year for 20 years, Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 11% a. Calculate each project's NPV. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Plan A: $ million Plan B: $ million Calculate each project's IRR. Round your answers to one decimal place. Plan A: Plan B: b. By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Round your answer to the nearest whole number. C. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one decimal place. d. Is NPV better than IRR for making capital budgeting decisions that add to shareholder value? -Select- Yes
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